Montgomery's Unseemly Windfall
How the rich get richer

Monday, April 17, 2006

AN UNHERALDED, fine-print change in federal tax law means that Montgomery County will reap an accidental windfall in state education funding, in the range of $20 million or more annually, starting in July of next year. That's nice for Montgomery. The trouble is, the windfall is largely at the expense of 20 of the 23 other jurisdictions in Maryland, especially Prince George's County. As a result of the federal change, Prince George's schools would be shortchanged by roughly the same amount, an estimated $20 million.

The arrangement is blatantly unfair -- it helps richer jurisdictions and penalizes poorer ones -- and Maryland lawmakers could have fixed it easily by adjusting state procedures to take account of the new federal rules. But in an election year, with Montgomery staunchly opposed, the chances of such a rational outcome were jinxed. Instead, the state is saddled with an inequitable system of education funding that probably could not withstand a court challenge.

For years Maryland has allocated state education funding according to a redistributive formula that favors poorer localities. The trouble began recently when the federal government changed the deadline by which taxpayers who request automatic extensions must file their returns this year, from Aug. 15 to Oct. 15. Because Maryland calculates income data each year as of Sept. 1, the new federal deadline means the state will undercount taxable income generally and wealthier taxpayers' income in particular, since they tend to request automatic extensions more often and file their returns later than others. In Montgomery, the state's most affluent county, taxpayer income will be substantially undercounted.

Understating Montgomery's wealth skews the formula that determines state education funding. It helps out the county's schools, already among the best and best-funded in the nation, and deprives almost every other jurisdiction in the state, including Prince George's and Baltimore City, where many schools are struggling. It could have been remedied by setting Nov. 1 as the date by which Maryland calculates income data, thereby capturing most of Montgomery's late-filing taxpayers. But the county, which stood to lose from such a fix, had a powerful advocate in Del. Sheila E. Hixson (D), chairman of the state's House Ways and Means Committee. She blocked such a solution, and a fair allocation of resources.

Now the state is stuck for the time being with an unsustainable education funding formula, which benefits the few at the expense of the many. Having opted for political expedience over fairness, lawmakers must address the issue next year and find a solution.